Gas firm wants to extend Southern Tier leases

Landowners receive 'force majeure' letters

Jul. 10, 2011

Dawn and John Alfano, owners of Jada Hill Farm in the Town of Sanford, were among the members of the Deposit Coalition who received letters from XTO Energy notifying them that the company is seeking to forcibly extend their leases due to ongoing regulatory delays on hydraulic fracturing. / WILLIAM MOYER / Staff Photo

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DEPOSIT -- A Texas-based energy company blanketed Broome and Delaware county landowners with letters bearing an unwelcome piece of news last week.

XTO Energy is seeking to forcibly extend oil and gas leases because of long-standing bans on high volume hydraulic fracturing, the company told landowners in "force majeure" letters sent to members of the Deposit Coalition last week.

"We didn't like it, (but) it's not a surprise," said Dewey Decker, who led the 500-member coalition when it signed its $110 million deal with XTO in 2008. "We kind of expected it."

Signed in May 2008, leases gave landowners $2,411 per acre up front in addition to 15 percent royalties and were originally set to expire after five years.

The deal between the landowners and XTO -- now owned by ExxonMobil -- marked the beginning of the gas lease rush in the Southern Tier, which has slowed precipitously as the techniques used to extract natural gas from the massive Marcellus Shale formation have been stalled by government regulatory reviews.

Both the state Department of Environmental Conservation and the Delaware River Basin Commission -- a federal-state compact agency that regulates water use in a four-state area -- have put holds on permitting for high-volume hydraulic fracturing while regulatory and environmental impact reviews are underway.

In the three-page force majeure letter sent to landowners last week, XTO cited the bans as an unpredicted and uncontrollable event that it said provides legal justification for the extension of the leases.

" ...These unforeseen events constitute a force majeure event, as executive orders and other governmental regulatory action beyond XTO's control have delayed the process for obtaining permits required to produce gas from the property under the lease," the letter states.

"Your lease will be extended so long as XTO is prevented from conducting drilling or reworking operations on or from producing oil or gas from the land covered by your oil and gas lease," it adds.

Decker noted the letter doesn't specify a time period for the extension, or indicate when the extension begins. He said he's seeking more information from the company before landowners decide how to go forward.

Force majeure letters sent out by Chesapeake Energy have resulted in two separate federal class action lawsuits filed early this year involving about 300 Southern Tier landowners who are disputing the legality of the company's action.

XTO spokesman Jeff Neu declined to answer a written list of questions, including whether landowners would receive compensation during the lease extension period and how many letters were sent out.

"The only thing that's clear is that they're going to try to use force majeure," Decker said. "And naturally, I'm getting calls from everybody that everybody's upset. And I can understand it."

"I don't feel it's hardly fair," said Town of Sanford landowner Elinor Kellett, who received one of the letters.

DEC Commissioner Joseph Martens said last week that permits for high-volume fracturing could be issued as early as the beginning of 2012 as the agency's environmental review process nears completion.

However, drilling would be banned within the New York City watershed and a 4,000 foot buffer zone under a newly released draft of DEC's proposed regulations.

According to Decker, about 80 percent of the Deposit Coalition lies within the DRBC's purview, and will be shut out from high-volume hydraulic fracturing until the agency lifts its moratorium.

About 15 percent of the coalition -- all of which falls within the DRBC area -- lies with the New York City watershed, and would be locked out of gas extraction activity by the DEC's proposed ban.